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OPINION

Russian state firms defy sanctions speculation with bond sales

Two borrowers beat US pressure by tapping into demand with euro and renminbi sales.

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For proponents of sanctions on Russia, November got off to a good start. In the first week of the month, two events apparently increased the likelihood of stricter penalties being imposed.

First, the US State Department confirmed that the Kremlin had missed a deadline – set after the attempted assassination of Sergei Skripal in the UK – to respond to concerns about its use of chemical weapons. Then the following day, the US midterm elections delivered a majority for the Democrats in Congress.

Speculation mounted that investors would be forced to divest Russian sovereign bonds or that Russian state banks could be shut out of the international dollar system. Russian assets, already under pressure from the global emerging markets sell-off in October, came under further pressure.

Sanctions hawks may have been less encouraged by the events of the following week. On November 14, Gazprom became the first Russian borrower to tap the Eurobond market since the last sanctions escalation in April, raising €1 billion at a yield of less than 3%. A day later, state electricity producer RusHydro sold the first Russian corporate bond denominated in offshore renminbi.